Corruption with Heterogeneous Enforcement Agents in the Shadow Economy - 10.1628/093245607781261397 - Mohr Siebeck
Economics

Pinaki Bose, Luciana Echazu

Corruption with Heterogeneous Enforcement Agents in the Shadow Economy

Volume 163 () / Issue 2, pp. 285-296 (12)

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We analyze the relationship between the underground (or shadow) economy and the formal or legal sector in the presence of corruption in both sectors. Firms choose between operating in the legal and in the underground economy. With morally heterogeneous law enforcement agents monitoring the underground economy, the equilibrium in both sectors depends critically on the incentives of honest enforcers and on the proportion of such agents. In particular, we show that an increase in the proportion of honest agents monitoring the shadow economy may have the adverse effect of increasing its size, together with concomitant increases in negative externalities.
Authors/Editors

Pinaki Bose No current data available.

Luciana Echazu No current data available.